PART A: CAPITAL BUDGETING [30 MARKS] You are working as a financial analyst at Bolton Pty Ltd. Your boss, the Chief Financial Officer sent you an email about the new consulting project from Goulburn Manufacturing Ltd. He classified the project as a risky project and required you to make a recommendation and respond to several questions to justify your risk analysis and capital budgeting. Below is the excerpt of the email sent by Chief Financial Officer: Goulburn Manufacturing Ltd manufactures a range of shoes for customers. Goulburn Manufacturing Ltd is well-known for speciality shoes in the local and global market. They have undertaken a comprehensive $50,000 market research project into identify that a market exists for new speciality shoes designed for diabetic patient. The new product line requires new equipment to be estimated at $10,000,000 Goulburn Manufacturing has made the following projections with the new technology: Consultants cost of $50,000 Expected to sell for an average price of $200 per unit and expected to sell 20,000 units per year for the next five years Initial cost of the equipment is $10,000,000 and expected to depreciated at 20% straight line method The salvage value of the equipment in five years is $100,000 Working capital required is $30,000 Goulburn Manufacturing Ltds required rate of return is 10% Tax rate is 30% a) Prepare the cash flow for the next five years using an Excel Spreadsheet.

Calculate the following (20 marks)

i. After-tax cash flows

ii. Payback period

iii. Discounted Payback Period

iv. Net Present Value

v. Profitability Index

b) Make a recommendation to Goulburn Manufacturing Ltd if they should proceed with buying the machine or not. Explain the criteria to justify your decision. (5 marks)